Before you go out and purchase your winning stocks, you should be doing some research on the respective companies. This is crucial. You do not want to invest your hard-earned money in a company, only to learn later on that you bought a castle in the sky (overvalued stock with no solid revenues for a solid foundation) stock. I have spoken to people who told me they had a hot tip, yet when I asked them what the company did, they couldn't even give me an answer. This is like someone calling you at home, asking you for your money, promising to return it with interest at a later date, and not leaving a return address or telephone number.

You don't have to spend a lot of time doing your research, since there is simply key information you should be researching. On average, you should spend at least one hour per money investment decision. After that, all you need are a few minutes a day to follow up on the stocks' performance. So what kind of information should you look for?

company's fundamentals

It is a good idea to know what industry the company is in. Is it in a growth industry? Is it in a mature industry or a declining industry? This is a small, yet very important detail, because stock valuation is measured on estimated future revenue. Purchasing a stock that is in the declining industry means that revenues are expected to decline, as will the stock value.

A second key statistic to look for, is the company's market capitalization (number of shares multiplied by the stock's market value). The market capitalization is important to know because it lets you see if the company has room to grow. To get a better feel for the market cap., you can compare it with the market cap. of a company within the same industry. The market capitalization of industry leaders can be compared to that of other industry leaders.

The P/E ratio (price to earnings) tells you how much current market participants are willing to pay for each dollar earned by the company. For example, a price P/E ratio of 18 means that investors are willing to pay $18 dollars for every dollar earned. Historically, the P/E ratio has been between 18-24 and a little higher (60) for high growth firms. This will allow you to decide whether the stock is under or overvalued. An example of a undervalued company would be a P/E ratio of 12 and a overvalued company would have a P/E ratio of 200. You should be aware of two factors. First, market conditions are changing; more and more people are investing, causing demand, price and P/E ratios to rise. Second, the reported P/E ratios are based on current earnings and not on future earnings.